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Forex Today: Post-CPI USD selloff pauses ahead of producer inflation data
Here is what you need to know on Thursday, June 13:
The US Dollar (USD) seems to have stabilized early Thursday after suffering large losses against its major rivals on soft inflation data on Wednesday. In the second half of the day, the US economic docket will feature weekly Initial Jobless Claims data and Producer Price Index figures for May.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.02% | -0.47% | 0.25% | -0.11% | -0.94% | -1.00% | -0.22% | |
| EUR | 0.02% | -0.10% | 0.54% | 0.17% | -0.65% | -0.72% | 0.04% | |
| GBP | 0.47% | 0.10% | 0.76% | 0.28% | -0.55% | -0.62% | 0.14% | |
| JPY | -0.25% | -0.54% | -0.76% | -0.35% | -1.27% | -1.35% | -0.44% | |
| CAD | 0.11% | -0.17% | -0.28% | 0.35% | -0.80% | -0.89% | -0.12% | |
| AUD | 0.94% | 0.65% | 0.55% | 1.27% | 0.80% | -0.07% | 0.69% | |
| NZD | 1.00% | 0.72% | 0.62% | 1.35% | 0.89% | 0.07% | 0.77% | |
| CHF | 0.22% | -0.04% | -0.14% | 0.44% | 0.12% | -0.69% | -0.77% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The Bureau of Labor Statistics reported on Wednesday that inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3.3% on a yearly basis in May from 3.4% in April. The annual core CPI, which excludes volatile food and energy prices, rose 3.4%, compared to analysts' estimate of 3.5%. On a monthly basis, the CPI was unchanged, while the core CPI was up 0.2%. The USD Index turned south and slumped below 104.50 with the immediate reaction.
Later in the day, the Federal Reserve (Fed) announced that it left the policy settings unchanged following the June meeting, as widely anticipated. The revised Summary of Economic Projections, the so called dot-plot published alongside the policy statement, showed that 4 of 19 officials saw no rate cuts in 2024, 7 projected a 25 basis points (bps) rate reduction, while 8 marked down a 50 bps cut in the policy rate.
In the post-meeting press conference, Fed Chairman Jerome Powell acknowledged the encouraging inflation data for May but said that they need to see more "good data" to bolster their confidence on inflation sustainably moving toward the 2% target. Powell further reiterated the data-dependent approach to policy and helped the USD find a foothold. Following the Fed meeting, the S&P 500 Index gained 0.85%, the Nasdaq Composite rose 1.3%, while the Dow Jones Industrial Average lost 0.1%.
EUR/USD climbed above 1.0850 on Wednesday but erased a portion of its daily gains later in the American session. The pair holds steady at around 1.0800 in the European morning on Thursday.
GBP/USD touched its highest level since early March above 1.2850 on Wednesday but struggled to preserve its bullish momentum. At the time of press, the pair was trading modestly lower on the day at around 1.2780.
USD/JPY registered small losses on Wednesday and climbed back above 157.00 in the European morning on Thursday. The Bank of Japan will announce monetary policy decisions during the Asian trading hours on Friday.
The data from Australia showed that the Unemployment Rate edged lower to 4% in May from 4.1% in April as expected. The Employment Change arrived at +39.7K, surpassing the market expectation of +30K. After rising nearly 1% on Wednesday, AUD/USD struggled to extend its rally despite the upbeat data and retreated to the 0.6650 area on Thursday.
Gold posted modest gains for the third straight trading day on Wednesday. With the benchmark 10-year US Treasury bond yield stabilizing above 4.3% following Wednesday's sharp decline, however, XAU/USD finds it difficult to attract bulls. At the time of press, the pair was down 0.5% on the day at $2,312.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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